MasterCard 2010 Annual Report Download - page 140

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
MasterCard’s fulfilling its undertakings, they do not intend to pursue proceedings for non-compliance with or
circumvention of the decision of December 2007 or for infringing the antitrust laws in relation to the October
2008 pricing changes, the introduction of new cross-border consumer default interchange fees or any of the other
MasterCard undertakings. MasterCard’s undertakings include: (1) repealing the October 2008 pricing changes;
(2) adopting a specific methodology for the setting of cross-border consumer default interchange fees;
(3) establishing new default cross-border consumer interchange fees as of July 1, 2009 such that the weighted
average interchange fee for credit card transactions does not exceed 30 basis points and for debit card
transactions does not exceed 20 basis points; (4) introducing a new rule prohibiting its acquirers from requiring
merchants to process all of their MasterCard and Maestro transactions with the acquirer; and (5) introducing a
new rule requiring its acquirers to provide merchants with certain pricing information in connection with
MasterCard and Maestro transactions. The undertakings will be effective until a final decision by the General
Court of the European Union regarding MasterCard’s application for annulment of the European Commission’s
December 2007 decision.
Although MasterCard believes that any other business practices it would implement in response to the
decision would be in compliance with the December 2007 decision, the European Commission may deem any
such practice not in compliance with the decision, or in violation of European competition law, in which case
MasterCard may be assessed fines for the period that it is not in compliance. Furthermore, because a balancing
mechanism like default cross-border interchange fees constitutes an essential element of MasterCard Europe’s
operations, the December 2007 decision could also significantly impact MasterCard International’s European
customers’ and MasterCard Europe’s business. The European Commission decision could also lead to additional
competition authorities in European Union member states commencing investigations or proceedings regarding
domestic interchange fees or, in certain jurisdictions, regulation. In addition, the European Commission’s
decision could lead to the filing of private actions against MasterCard Europe by merchants and/or consumers
which, if MasterCard is unsuccessful in its application for annulment of the decision, could result in MasterCard
owing substantial damages.
United Kingdom. In September 2001, the Office of Fair Trading of the United Kingdom (“OFT”) issued a
Rule 14 Notice under the U.K. Competition Act 1998 challenging the MasterCard default interchange fees and
multilateral service fee (“MSF”), the fee paid by issuers to acquirers when a customer uses a MasterCard-
branded card in the United Kingdom either at an ATM or over the counter to obtain a cash advance. Until
November 2004, the interchange fees and MSF were established by MasterCard U.K. Members Forum Limited
(“MMF”) (formerly MasterCard Europay U.K. Ltd.) for domestic credit card transactions in the United
Kingdom. The notice contained preliminary conclusions to the effect that the MasterCard U.K. default
interchange fees and MSF infringed U.K. competition law and did not qualify for an exemption in their present
forms. In February 2003, the OFT issued a supplemental Rule 14 Notice, which also contained preliminary
conclusions challenging MasterCard’s U.K. interchange fees (but not the MSF) under the Competition Act. In
November 2004, the OFT issued a third notice (now called a Statement of Objections) claiming that the
interchange fees infringed U.K. and European Union competition law.
Subsequently in November 2004, MasterCard’s board of directors adopted a resolution withdrawing the
authority of the U.K. members to set domestic MasterCard interchange fees and MSFs and conferring such
authority on MasterCard’s President and Chief Executive Officer.
In September 2005, the OFT issued its decision, concluding that MasterCard’s U.K. interchange fees that
were established by MMF prior to November 18, 2004 contravene U.K. and European Union competition law.
The OFT decided not to impose penalties on MasterCard or MMF. MMF and MasterCard appealed the OFT’s
decision to the U.K. Competition Appeals Tribunal. In June 2006, the U.K. Competition Appeals Tribunal set
aside the OFT’s decision, following the OFT’s request to the Tribunal to withdraw the decision and end its case
against MasterCard’s U.K. default interchange fees in place prior to November 18, 2004.
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